Should you buy an extended warranty?

Whether buying new or used, car dealerships often try and pitch an extended warranty package as you finalize the sale.

After all, your wallet is now open, meaning the timing is perfect for an up sell. These extended warranty packages typically sound attractive, amount to an incremental cost or payment and are popular with shoppers across the country.

Simply, you pay a bit more money (or sometimes, a lot) and, in return, you get an added length of coverage in case of an issue or malfunction with your new or used vehicle.

Some shoppers dive into the extended warranty with little second thought; the added investment being worthwhile in exchange for a longer period of worry-free driving.

Many shoppers even set their car-buying budget with a good extended warranty package in mind and, in some cases, the added cost can even be rolled into the financing and monthly payments.

Other shoppers may find the add-on warranty stretches their budget too thinly, or don’t find it worthwhile. Many shoppers skip the extended warranty package, thereby “taking their chances” on how trouble-free the vehicle will be for the long haul.

Below, I’ll offer up some thoughts on extended warranty packages, some ideas you may find useful, and some questions to ask yourself before making a decision.

Is it necessary?

Extended warranty packages sell peace of mind, which some shoppers are willing to pay extra for. If you like to play it safe and have nothing to worry about, then go for it, but only after reading the fine print. Also, consider how likely a new vehicle is to need, say, a $1,400 repair in the first few years of its life.

Everyone has a different tolerance for cost and risk and you can assess yours best after reading all relevant documentation. Here’s a good time to ask yourself what the warranty costs, how long it adds coverage for and what likelihood there is of the vehicle needing a costly repair within that period.

Who pays and when?

Extended warranties can vary vastly, and some packages require the driver to have a repair pre-authorized by the warranty company, to pay for that repair up front, and then to send a bill for reimbursement, which could take several weeks. Other warranty packages don’t require any money to leave your wallet.

Others still require you to pay a deductible against certain or all repairs. Consider this in your calculations on the cost of the warranty versus the cost of repairs and your own individual tolerance for risk. Before you sign up for an extended warranty package you’ll want to know who pays for the repair up front, what the deductible is (if applicable) and how long it takes to be reimbursed (if applicable).

What isn’t covered?

This is the first question I ask when presented with an extended warranty package on anything I buy. Just last month, when buying a new camera, I was asked if I wanted to drop another $400 to add a few years of additional protection for its internal circuitry.

I declined, since I’ve owned four previous cameras from the same manufacturer (Nikon) and had no problems. If I have a problem with a camera, it’s going to be caused by me dropping or smashing it (I’m clumsy as all heck) and this isn’t covered by the warranty.

Apply the same logic to extended car warranties. Understand that some warranties don’t cover vehicles that are used for snow plowing and others don’t cover vehicles that have been modified, even slightly, from factory spec.

Further, some warranties don’t cover “known” issues with certain makes and models, so if a machine you’re buying is widely known for, say, transmission failure, you may not actually be covered. The gist? Be sure you fully understand what parts of what vehicle systems are covered and which are not before you decide.

Further, some warranty packages don’t even cover the cost of new parts for repair. For instance, if you blow the engine or transmission in your vehicle, the warranty package may specify coverage for a used engine from a wrecker, not a new one.

A note on maintenance

Remember that consistent, regular and timely maintenance is a great way to reduce your ongoing costs and extend the life of your vehicle. If you’re religious about maintaining your vehicle, there may be less need for an extended warranty package.

Also, note that warranty packages typically require drivers to stick, very strictly, to certain maintenance requirements. Though you should be doing this anyways, even stretching an oil change by a month can void your coverage, tossing your investment in an extended warranty out the window.

We’ve even of heard stories where a customer bought a pricey extended warranty package, needed a new axle, but were denied coverage because they missed an oil change. Though oil changes are expressly not related in any way to the vehicle’s axle failure, the warranty was still voided.

In summation, you’ll need to maintain your vehicle religiously to keep its warranty in good standing, but if you maintain your vehicle religiously, you’re less likely to need that warranty anyways.

Consider this

Here’s my go-to story about extended warranty packages. Once upon a time, your correspondent bought a used vehicle and spent $1,100 on additional warranty coverage, with protection up to 120,000 kilometres. Normally, I don’t buy extended warranties, but this vehicle was known for (pricey) head-gasket problems, so I figured it was worth the cost.

Later, my unused warranty expired at 120,000 kilometres. At 123,000 kilometres, the head-gaskets in my engine failed. Repairing them cost about $1,500. Had they failed just one oil change earlier, they’d have been covered. Timing was not on my side and I was out $1,100 for the warranty and another $1,500 for the gaskets.

So, consider the price of the extended warranty and then consider putting that much money aside in your bank account (or under a mattress) in case you need some repair. This way, you’ve got money aside if a repair is needed and you still have money aside if it isn’t. Following this logic, in my specific example, would have saved me a pile of money.